Five years after the global financial crisis, the world economy is showing signs of bouncing back this year, pulled along by a recovery in high-income economies, says the World Bank’s latest Global Economic Prospects report brought out on January 14, 2014. After several years of extreme weakness, high-income economies appear to be finally turning the corner, contributing to a projected acceleration in global growth from 2.4 per cent in 2013 to 3.2 per cent this year, 3.4 per cent in 2015, and 3.5 per cent in 2016.

High-income economic growth is projected to strengthen from only 1.3 per cent in 2013 to 2.2 per cent this year and 2.4 per cent in each of 2015 and 2016. In addition to providing a second basis for global growth, stronger high-income growth and import demand will be an important tailwind for developing countries’ exports. Activity and sentiment in developing countries has turned up since mid-2013, bolstered by strengthening high-income demand and a policy-induced rebound in China. These positive developments were partly offset by tighter financial conditions and reduced capital flows as long-term interest rates in the United States ticked up in response to expectations of the gradual withdrawal of quantitative easing.

Other major headwinds included declining commodity prices for commodity exporters. Overall, growth in developing countries is projected to pick up modestly from 4.8 per cent in 2013 to 5.3 per cent this year, 5.5 per cent in 2015, and 5.7 per cent in 2016.

REAL GDP GROWTH (% INCREASE)
2012
2013e
2014f
2015f
2016f
Brazil
0.9
2.2
2.4
2.7
3.7
Russian Federation
3.4
1.3
2.2
2.7
3.0
India
5
4.8
6.2
6.6
7.1
China
7.7
7.7
7.7
7.5
7.5
South Africa
2.5
1.9
2.7
3.4
3.5
All developing countries
4.8
4.8
5.3
5.5
5.7
All developed countries
1.5
1.3
2.2
2.4
2.4
World
2.5
2.4
3.2
3.4
3.5

Regional outlook
Growth accelerations would likely be muted in East Asia and the Pacific. GDP growth is projected to remain flat at about 7.1-7.2 per cent over the projection horizon, partly reflecting a slowing growth in China as it rebalances its economy. Subdued global trade, tighter financing conditions and less supportive commodity markets have left many countries in Latin America and Caribbean struggling with relatively weak growth, which would see aggregate growth for the region pick up from 2.5 per cent to 3.2 per cent in 2014 and 2015.

GDP growth in developing Europe and Central Asia is projected to rise from 3.4 per cent in 2013 to 3.5 per cent in 2014 and 3.8 per cent in 2016. In the Sub-Saharan Africa region, relatively robust domestic demand, notably resource-sector and infrastructure investments, should help support regional growth of about 5.4-5.5 per cent in 2015 and 2016.

In South Asia, weaker growth in India—following several years of rising inflation and current account deficits—has opened up a large negative output gap, which is projected to gradually close as the economy recovers, with its growth rate forecast at 6.2 per cent in 2014 (fiscal 2014-15), 6.6 per cent in 2015 (fiscal 2015-16) and 7.1 per cent in 2016 (fiscal 2016-17), against an estimated 4.8 per cent in 2013 (fiscal 2013-14). Regional GDP is expected to strengthen from 4.6 per cent in 2013 to 5.7 per cent in 2014 to about 6.7 per cent in 2016.

Many of the economies of the Middle East and North Africa region remain in turmoil nearly three years after the Arab Spring uprisings first began. Regional GDP, estimated to have remained flat in 2013, is projected to expand by 2.8 per cent in 2014 before rising to 3.6 per cent in 2016.

In the baseline prospects scenario, the withdrawal of quantitative easing (and its effect on the long end of US interest rates) is assumed to follow a relatively slow orderly trajectory as the economy improves. In an orderly adjustment scenario, tailwinds from strengthening global trade should offset headwinds from tighter global financial conditions.

Although major tail-risks have subsided, they have not been eliminated. The risks include fiscal policy uncertainty in the USA, protracted recovery in the Euro Area, and possible setbacks in China’s restructuring, cautions the GEP.


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